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Impact of Commodity Price Volatility on External Debt: The Role of Exchange Rate Regimes

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  • Majumderad, Monoj Kumar
  • Raghavan, Mala
  • Vespignani, Joaquin L.

Abstract

This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigating the effects of commodity price volatility on external debt accumulation

Suggested Citation

  • Majumderad, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin L., 2021. "Impact of Commodity Price Volatility on External Debt: The Role of Exchange Rate Regimes," MPRA Paper 105269, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105269
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    1. Reyes-Tagle, Gerardo & Muñoz-Ayala, Jorge E., 2023. "Debt and Economic Growth: Does Size Matter? Evidence from Dynamic Parametric and Static Non-parametric Approaches," IDB Publications (Working Papers) 12780, Inter-American Development Bank.
    2. Durand-Lasserve, Olivier & Karanfil, Fatih, 2023. "Fiscal policy in oil and gas-exporting economies: Good times, bad times and ugly times," Energy Economics, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Commodity price volatility; external debt; commodity-exporting countries; exchange rate regime;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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